Strong MEP vote for new derivatives regulations

The European Parliament’s plenary session in Brussels today voted overwhelmingly in favour of new rules governing the derivatives market, encompassing both OTC and non-OTC derivatives.

The regulations require all OTC (over the counter) contracts to be cleared through central counterparties (CCPs), in order to cut counterparty risk. Non-OTC derivative contracts will have to be reported to so-called “trade repositories” that publish aggregate positions by class of derivatives, to offer market transparency.ESMA, the European Securities and Markets Authority, would be responsible for overseeing the trade repositories.

Also voted through today was a light touch regime for pension schemes. These will not have to implement the new derivatives obligation for three years. The MEPs decided that CCPs from third countries will only be recognised if those countries provide an equivalent regulatory environment.

The legislation will now be evaluated by the European Commission as to the effectiveness of the CCP supervision and ESMA’s role in the process of authorising CCPs. A report will be delivered to the European Parliament and the European Council no later than three years after the introduction of the legislation.